A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Meloni, Giulia; Swinnen, Johan Working Paper The Rise and Fall of the World's Largest Wine Exporter (And Its Institutional Legacy) LICOS Discussion Paper, No. 327 Provided in Cooperation with: LICOS Centre for Institutions and Economic Performance, KU Leuven Suggested Citation: Meloni, Giulia; Swinnen, Johan (2013) : The Rise and Fall of the World's Largest Wine Exporter (And Its Institutional Legacy), LICOS Discussion Paper, No. 327, Katholieke Universiteit Leuven, LICOS Centre for Institutions and Economic Performance, Leuven This Version is available at: http://hdl.handle.net/10419/74974 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu LICOS Discussion Paper Series Discussion Paper 327/2013 The Rise and Fall of the World’s Largest Wine Exporter (And Its Institutional Legacy) Giulia Meloni and Johan Swinnen Katholieke Universiteit Leuven LICOS Centre for Instit utio ns a n d Ec o n o m ic Perfor mance Waaistraat 6 – mailbox 3511 3000 Leuven BE LGI UM TE L:+32 -(0)16 3 2 65 98 FAX:+32- (0)1 6 32 65 99 http://w ww. econ.kule uven.be/licos The Rise and Fall of the World’s Largest Wine Exporter (And Its Institutional Legacy) Giulia Meloni and Johan Swinnen LICOS Centre for Institutions and Economic Performance & Department of Economics University of Leuven Version: 29 January 2012 Abstract It is hard to imagine in the 21st global wine economy, but until 50 years ago Algeria was the largest exporter of wine in the world – and by a wide margin. Between 1880 and 1930 Algerian wine production grew dramatically. Equally spectacular is the decline of Algerian wine production: today, Algeria produces and exports little wine. This paper analyzes the causes of the rise and the fall of the Algerian wine industry. There was an important bi-directional impact between developments of the Algerian wine sector and French regulations. French regulations had a major impact on the Algerian wine industry. Vice versa, the growth of the Algerian wine industry triggered the introduction of important wine regulations in France at the beginning of the 20th century and during the 1930s. Important elements of these regulations are still present in the European Wine Policy today. Keywords: European agriculture, wine history, regulation, appellations, institutions. JEL classification codes: K23, L51, N44, N54, Q13. 2 The Rise and Fall of the World’s Largest Wine Exporter (And Its Institutional Legacy) Giulia Meloni and Johan Swinnen 1. Introduction It is hard to imagine in the 21st global wine economy, but in 1960 – 50 years ago – Algeria was the largest exporter of wine in the world – and by a wide margin: it exported twice as much wine as the other three major exporters (France, Italy and Spain) combined. Moreover, it was the fourth largest producer of wine in the world. In the 50 year period between 1880 and 1930 Algerian wine production and exports grew dramatically, turning it from non-existent into the world’s largest exporter of wine.1 What is equally spectacular as the rise of Algerian wine production is its decline. The fortune of Algerian wine has fallen dramatically. Today, Algeria produces and exports virtually no wine anymore. In fact, the current Algerian wine production reflects the situation at the end of the 19th century when wine production was virtually inexistent. Hence, over the course of a century, Algeria went from producing almost no wine to the world’s largest exporter to producing very little wine again. The analysis of the causes of growth and decline of such an important economic sector should be of interest to everybody interested in economic history and development. In this paper we document the rise and the fall of the Algerian wine industry and explain how they were caused by a combination of factors, including technological advances, the spread of vine 1 Throughout the paper we consider Algeria as separate from France when we talk about wine production and trade. Algeria was a colony of France throughout much of that period (1830-1962). 3 diseases, and associated migration of investors and human capital. The developments in the Algerian wine industry were heavily influenced by its impact on the French wine market and French regulations. Free trade with France stimulated the growth of Algerian exports when high import tariffs blocked imports from Spain and Italy in the late 19th century. However, from the 1930s onwards, French wine regulations halted the expansion of Algerian wine production. After Algeria’s independence in 1962, French import restrictions caused a decline in Algerian exports and, in combination with state intervention and poor management in Algeria, caused the collapse of the Algerian wine industry. However, there is an additional story – and one with major implications for today’s wine markets. The growth of the Algerian wine industry had a crucial impact on French wine regulations. Even if the Algerian wine industry has effectively disappeared from the world’s wine market today, the institutional legacy of the Algerian wine industry in France, and in the world, continues. The growth of the Algerian wine industry triggered the introduction of important wine regulations in France at the beginning of the 20th century and during the 1930s. These regulations formed the basis of other regulations which today affect a large share of the global wine production. In fact, important elements of the French wine regulations triggered by the Algerian wine industry’s spectacular growth are still present in the European Wine Policy today. 2. The Growth of the Wine Industry in Algeria in the late 19th century When France annexed Algeria in 1830, nobody would have predicted that Algeria would become the world’s largest exporter of wine and the fourth largest wine producer (see table 1).2 While 2 The Algerian cultivable land amounts to only 3% of the country (7,5 million hectares). To compare: France has 32 million cultivable hectares, 60% of the national territory (Fillias, 1886; Birebent, 2007). 4 wild grapevines were present in Algeria since the Phoenicians and Carthaginians3 traded huge quantities of wine (and transplanted grapevines) across the Mediterranean sea during the first millennium BC, the cultivation of vines never took off on a substantial level. The Romans used this region as a granary for their Empire. Later, under Arab rule, viticulture was not encouraged as the Koran forbade alcohol consumption (Bourget, 1930; Barrows, 1982; McGovern, 2009; Carlà and Marcone, 2011). It was only after France colonized the region in 1830 that Algerian viticulture developed. The French colonialists and settlers consumed wine since it was considered to be the safest drink and a “cure” against certain epidemics such as cholera (Birebent, 2007:67). Yet it took some time for wine production to develop. The first attempts to produce wine in Algeria were unsuccessful and the settlers imported wine from France (Leroy-Beaulieu, 1887; Isnard, 1947; Isnard and Labadie, 1959).4 It was only after 1880s that the Algerian wine industry took off seriously (see figure 1). The remarkable growth after 1890 was caused by a combination of scientific progress and the spread of a disease in France. Technological progress in wine production From 1830 to 1860, French settlers tried to plant vines5 in Algeria’s warm subtropical climate but winegrowers did not have the technology to produce drinkable wines in a hot climate. The problem of fermentation in hot countries is the high temperatures reached in the tanks. If the heat exceeds 40°C, sugar cannot be converted into alcohol and fermentation stops. 3 Mago of Carthage wrote the first treaty on viticulture, later becoming the basis of Roman wine knowledge (McGovern, 2009:195). 4 Not only vineyards failed, also other tropical plant species, as sugarcane, cocoa, coffee and cotton, were not successful because of a poor understanding of the Algerian climate (Isnard, 1949). 5 About 2.000 hectares of vines were cultivated in 1830, mainly belonging to Turkish officials and Moorish merchants (Birebent, 2007). 5 Refrigeration is needed to control the temperature in the tanks during the fermentation process but refrigeration technology was not available at the time (Dervin, 1902). Scientific and technological innovations changed this by making wine production in hot climates possible. Pasteur’s discoveries in the middle of the 19th century on the role of yeasts in alcoholic fermentation were the basis for winemaking in hot climates. With high temperatures, yeasts cannot survive and fermentation stops unintentionally, leading to wine spoilage and bad wines6 (Robinson, 2006:565). Pasteur’s discoveries led to an innovation in wine production, called “cold fermentation”, which allowed producing better wine in warm climates such as Algeria (Johnson et al., 2010). In order to control temperature during fermentation in the tanks, advanced refrigeration systems were introduced.7 For instance, by the 1890s, the Baudelot cooler (previously used for brewing) was applied to wine.